JPMorgan Chase, Essay Example

Besides JPMorgan Chase, majority of famous banking institutions in the USA have also been involved in fraudulent activities related to falsified disclosures. For example, Goldman Sachs, one of the most respected USA financial institutions, was charged for failing to disclose essential information on stocks tied to subprime mortgages to potential investors (Barr, 2010). As a result of the non-disclosure, investors lost close to $1billion. Similar cases in the 1990s necessitated creation of the Securities and Exchange Commission (SEC) to oversee financial transactions and activities of banks.

In its oversight role, SEC takes both proactive and punitive measures to enhance its effectiveness in preventing these cases of high-risk banking or securities transactions. Through its various departments and offices, SEC oversees implementation of disclosure clauses of the SEC Act in the banking industry (U.S. Securities and Exchange Commission, n.d.). These clauses require financial institutions to provide their clients and potential investors with meaningful information about securities and other financial products, as well as associated risks and financial performance. This aims to empower investors in making well-informed decisions on securities or products in which to invest. Besides overseeing the implementation, SEC continuously investigates banking activities for compliance with the relevant regulations. It also enforces the regulations by prosecuting and imposing monetary fines for non-compliant banks. These fines are designed to deter the concerned institution, as well as other banks, from engaging in fraudulent disclosures that could lead consumers to making wrong investment decisions.

An agreement or a relationship can be regarded as a valid contract only if it comprises four principal elements: agreement, consideration, rational parties, and legality (Goldman & Sigismond, 2014). An agreement refers to terms and conditions of a contract. The agreement only exists if an offeree accepts terms and conditions presented by an offerror. Consideration is a valuable something (term or condition) shared between the parties to make the agreement binding. It may include money, financial products, or meaningful information. To be legally binding, a contract should be made between rational parties, who have legal and mental capacity to enter into an agreement. Legality of a valid contract is present if the terms and conditions comply with relevant regulations and policies, such as banking laws. Besides the four elements, the aspect of legality imposes an implied element of good faith and fair transactions on parties to a contractual agreement. This implied element prohibits the parties from engaging in activities or behaviors that might unfairly cause any of the parties not enjoy contractual benefits.

In case of banking relationships, banks and consumers should exercise the implied element by desisting from fraudulent financial dealings that denies either party the right to its benefits expressed in the terms and conditions of the contract (Goldman & Sigismond, 2014). To a larger extent, this implies that banks should behave professionally and legally, providing products, services, and meaningful information to enable customers to make informed investment decisions. On their part, customers should not engage in activities that might undermine the performance and operations of the banks or negatively affect investment decisions of other customers.

Tort action arises when a person’s carelessness or deliberate actions result in psychological or physical harm to other people and/or their property. Based on the nature of a wrongful act, a tort can be classified into intentional and negligent torts, as well as torts based on strict liability. Besides being tort actions, negligent and intentional torts require the wrongdoer to pay monetary compensation or financial damages to the victims (Goldman & Sigismond, 2014). This is aimed to enable the victim or victims to recover to their initial state before the commission of the tort act.  However, the two types of tort differ in terms of characteristics and defenses.

An intentional tort occurs when a person willingly or knowingly causes injury to another person or property of another person. Actions categorized under this tort include defamation, battery and assault, fraudulent activities, trespassing, and theft of trade secrets, among many others. Plaintiffs are required to demonstrate that the defendant acted deliberately. Defendants of civil actions involving deliberate tort can defend themselves by proving necessity, consent, and privilege to perform the injurious act. By contrast, negligent or unintentional tort action arises when a person unknowingly harms another person or property of other people through careless conduct.  To prove negligence, a plaintiff is required to prove legal duty of care of a defendant, breach or neglect of the duty, and proximate relations between the negligence and injuries suffered. Defendants accused of negligent torts rely on contributory and comparative negligence to defend themselves (Miller & Jentz, 2008).

The tort action of deliberately interfering with contractual relations and taking part in violation of fiduciary duty occurs when an external party to a contract knowingly interferes with performance of a binding agreement. In this case, the third party, with knowledge of the existence of the contract between the other parties, engages in a behavior or an activity that leads one of the contracting parties to act in a manner that injures the other party. Consequently, by interfering with performance of the contract, the third party assists the contracting party to violate its fiduciary duty to the other party. To prevail in this tort, a plaintiff must demonstrate existence of valid contract with another party, the third party knew of the contract, and the third party willingly helped the other party to violate the contract (Miller & Jentz, 2008).

If Goldman Sachs were to act as JPMorgan Chase did, a consumer would be able to succeed in a tort case against Goldman Sachs. All elements of the tort action are present to prove it. In this case, the chief investment officer (CIO) entered into a contract with the customer, promising to make and inform the customer about the outcomes of all investment decisions, made on behalf of the customer. Being the employer of the CIO, the Goldman Sachs would be in a position to know that there is a valid contractual agreement between the CIO and the customer. Therefore, if the customer suffers financial loss due to investment decisions of the CIO and the Goldman Sachs goes ahead to conceal the loss by providing falsified financial reports to SEC, then the bank would have interfered with the contractual relationship between the chief investment officer and the customer. Consequently, this would prevent the CIO from fulfilling his or her fiduciary duty to the customer (Goldman & Sigismond, 2014). As the CIO of the bank, the CIO has a fiduciary duty to provide the customer with correct information about both positive and negative outcomes of the CIO’s investment decisions, made on behalf of the customer.

The advent of mobile banking has provided banks with a platform to automate their online transactions, allowing customers to perform majority of transactions through mobile phones. However, this revolution presented one major challenge to the banks, that is, protecting their mobile banking software from duplication by competitors. To address the challenge, banks have increasingly copyrighted their software. In business law, a copyright refers to a provision that grants an owner of an intellectual or artistic property an exclusive right to possess, produce, distribute, and license the property (Miller & Jentz, 2008). Unlike a patent, the right does not apply to the idea, but only the expression of the idea behind the property. Therefore, banks have relied on copyright to protect their mobile banking software (or their unique expression of the idea of mobile banking) from being copied by their competitors.

References

Barr, C. (2010, Apr. 16). SEC charges Goldman Sachs with fraud. CNN Money. Retrieved from http://money.cnn.com/2010/04/16/news/companies/sec.goldman.fortune/.

Goldman, A.J., & Sigismond, W.D. (2014). Business law: Principles and practices. (9^th ed.). Mason, OH: South-Western.

Miller, R.L., & Jentz, G.A. (2008). Business law today: The essentials. (8^th ed.). Mason, OH: Thomson Higher Education.

U.S. Securities and Exchange Commission (SEC). (n.d.). The investor’s advocate: How the SEC protects investors, maintains market integrity, and facilitates capital formation. Retrieved from https://www.sec.gov/about/whatwedo.shtml#.U5gCz3Y-DMw.